CGT and Deed of Trust

ianpalmer2007

Hi - my wife and I married in 2008 and I went to live in her property and we rented out my flat. In 2017 I set up a deed of trust giving her 99:1 interest in the property as she wasn't working and the rental income was offset against her allowances.
Now we are 73 & 63 we want to sell the flat. For purposes of CGT will the profit (anticipating £30k after allowable expenses) be split as 99:1 or 50:50 as we are a married couple? If it would be taxed at 99:1 could I make out a new deed of trust to put it to 50:50 and let that run for 12 months before selling it?

Keep_pedalling

Not sure what the answer is but assuming your wife takes 99% of the gain, the cost and effort of doing this is hardly worth the tiny amount of tax you will save. 

ianpalmer2007

Hi - I've just done the calculation and you might be right - the difference appears to be only £350 extra tax payable if I leave it. So, if I do leave it - do I have to complete a CGT return for both of us based on 99:1 (example: £30,000 profit - £29,700 gain for my wife and £300 gain for me?) or can I put the whole £30,000 gain against her name?
Thank you 🙏

Keep_pedalling

Your gain would be below the annual allowance (assuming it is still in place by the time you sell) so no need for you to anything.

Bookworm105

CGT is based on beneficial ownership, not legal ownership
CG11700P - Introduction and computation: chargeable assets: introduction: contents - HMRC internal manual - GOV.UK (www.gov.uk)

the DofT has established that as 99:1, so she will have 99% of the gain on her CGT calculation and you will have 1% on yours

with only 1% for you, apparently equating to £300, you will waste £2,700 of your £3k CGT allowance, so as a couple you would end up paying a minimum of £486 of unnecessary tax (ie if all gain at 18% rather than 24%)

you must each submit your own declarations, there is no joint/married tax return any longer. Women were emancipated decades ago. Those declarations must be done within 60 days of the completion of the sale, and the tax paid to the same time limit. 

Report and pay your Capital Gains Tax: What you need to do - GOV.UK (www.gov.uk)

you will then also need to report the figures again on your respective annual tax returns, making sure you deduct any CGT already paid so you don't end up being taxed twice 

doing a new declaration is best done whilst there is still rental income to be declared as HMRC take a dim view of % alterations done for CGT purposes only (eg when a property is already being marketed for sale). Whereas if say a month or so of income is taxed at say 50/50 then the CGT position would be less likely to be challenged as a deliberate action to evade capital tax only

That said altering the % should be carefully checked to ensure it does not push one of you over into the higher rate tax band and so incurring CGT at 24% rather than 18%, thereby unravelling some the benefit of the % change.

The above of course also assumes you sell (exchange contracts. not necessarily complete) before the tax rates increase after the budget....

ianpalmer2007

Ok, thank you - so if I leave it as it is and my wife pays all the CGT - am I right in saying that she can use my Private Residence Relief - of 93/288 months on her CGT return?

Bookworm105

ianpalmer2007 said:

Ok, thank you - so if I leave it as it is and my wife pays all the CGT - am I right in saying that she can use my Private Residence Relief - of 93/288 months on her CGT return?

No
ability to "inherit" PRR from a spouse is subject to slightly different criteria if the transfer took place before 6 April 2020

 CG64925 - Private residence relief: ownership period: spouses or civil partners and legatees - HMRC internal manual - GOV.UK (www.gov.uk)

Where the disposal between spouses or civil partners living together was made before 6 April 2020, the dwelling-house must have been their only or main residence at the time of the transfer,


if I read your timeline correctly the transfer ("disposal") took place in 2017 when you had already been living in her property as the marital main home since 2008 onwards. She was not living in the property as the marital home in 2017, so can't inherit your PRR.

on that basis your and her CGT exposure will be very different and may need to bias the beneficial ownership % towards you not her

(if you change % again "now" under the post 2020 criteria (residence in it at date of transfer not required) I have no idea if that would be treated as new disposal under the new rule - take professional advice before she claims PRR)

ianpalmer2007

Thank you - final question then. Can I do a "deed of trust" to put it 100% back to me thus using all of my PRR? My income is currently £20k per annum + the gain would be £23k after allowable expenses. If I put it in my name for 6 months before marketing it - I would pay tax of £400 on the rental income (that I don't currently pay) and £200 to do the "deed of trust" but getting the full PRR on the £23,000 (30% approx) would be worth it but is there anything to stop me putting it back to the pre 2017 position - i.e 100% on my name?

Bookworm105

ianpalmer2007 said:

Thank you - final question then. Can I do a "deed of trust" to put it 100% back to me thus using all of my PRR? My income is currently £20k per annum + the gain would be £23k after allowable expenses. If I put it in my name for 6 months before marketing it - I would pay tax of £400 on the rental income (that I don't currently pay) and £200 to do the "deed of trust" but getting the full PRR on the £23,000 (30% approx) would be worth it but is there anything to stop me putting it back to the pre 2017 position - i.e 100% on my name?

yes you can, there is no limit on how often transfers can be made between spouses living together 
HS281 Capital Gains Tax civil partners and spouses (2024) - GOV.UK (www.gov.uk)

Jeremy535897

Bookworm105 said:

ianpalmer2007 said:

Ok, thank you - so if I leave it as it is and my wife pays all the CGT - am I right in saying that she can use my Private Residence Relief - of 93/288 months on her CGT return?

No
ability to "inherit" PRR from a spouse is subject to slightly different criteria if the transfer took place before 6 April 2020

 CG64925 - Private residence relief: ownership period: spouses or civil partners and legatees - HMRC internal manual - GOV.UK (www.gov.uk)

Where the disposal between spouses or civil partners living together was made before 6 April 2020, the dwelling-house must have been their only or main residence at the time of the transfer,


if I read your timeline correctly the transfer ("disposal") took place in 2017 when you had already been living in her property as the marital main home since 2008 onwards. She was not living in the property as the marital home in 2017, so can't inherit your PRR.

on that basis your and her CGT exposure will be very different and may need to bias the beneficial ownership % towards you not her

(if you change % again "now" under the post 2020 criteria (residence in it at date of transfer not required) I have no idea if that would be treated as new disposal under the new rule - take professional advice before she claims PRR)

I confess I find CG64925 hard to follow. I can see nothing in the legislation to support a different analysis of the situation if the transfer between spouses took place before 6 April 2020, but I am probably missing something.

Bookworm105

Jeremy535897 said:

Bookworm105 said:

ianpalmer2007 said:

Ok, thank you - so if I leave it as it is and my wife pays all the CGT - am I right in saying that she can use my Private Residence Relief - of 93/288 months on her CGT return?

No
ability to "inherit" PRR from a spouse is subject to slightly different criteria if the transfer took place before 6 April 2020

 CG64925 - Private residence relief: ownership period: spouses or civil partners and legatees - HMRC internal manual - GOV.UK (www.gov.uk)

Where the disposal between spouses or civil partners living together was made before 6 April 2020, the dwelling-house must have been their only or main residence at the time of the transfer,


if I read your timeline correctly the transfer ("disposal") took place in 2017 when you had already been living in her property as the marital main home since 2008 onwards. She was not living in the property as the marital home in 2017, so can't inherit your PRR.

on that basis your and her CGT exposure will be very different and may need to bias the beneficial ownership % towards you not her

(if you change % again "now" under the post 2020 criteria (residence in it at date of transfer not required) I have no idea if that would be treated as new disposal under the new rule - take professional advice before she claims PRR)

I confess I find CG64925 hard to follow. I can see nothing in the legislation to support a different analysis of the situation if the transfer between spouses took place before 6 April 2020, but I am probably missing something.

no, you are wrong: FA 2020

"Where the inter-spouse or civil partner disposal took place before 6 April 2020, different rules applied. This was because, prior to amendment by FA 2020, s. 24, the rules in s. 227(7)(a),(b) only applied if the dwelling-house was the only or main residence of the transferor at the time of the transfer . "

examples 2 & 3 illustrate
546-480 Special rules for transfers between spouses and civil partners | Croner-i Tax and Accounting (croneri.co.uk)